US: Watch out for USD correction as Fed pricing rises - BNPP

Research Team at BNP Paribas, notes that the rates markets are now pricing more than 70% chance of a Fed rate hike in Q4 and BNPP’s STEER™ framework suggests the USD is running ahead of rates markets.

Key Quotes

“With our positioning analysis showing long USD exposure has built up quickly to levels last seen in early 2016, we are wary that a setback for the risk environment or downside surprises in US data would leave the dollar vulnerable. Yesterday, St. Louis Fed President Bullard suggested December would be the most likely timing for a rate hike. Chicago Fed President Evans was also fairly dovish, noting concern about inflation running too low even if he continues to forecast three rate hikes by the end of 2017.

Today, we expect Conference Board consumer confidence to retreat back to 100 after a surge to 104.1 in September. Later, Atlanta Fed President Lockhart will provide the final scheduled Fed appearance before the quiet period ahead of the November 2 FOMC meeting.”